Problemnew schools inc expects an ebit of 7000 every year, Ask an Expert

Accounting

Problem:

New Schools, Inc. expects an EBIT of $7000 every year forever. The firm currently has no debt, and its cost of equity is 17%. The firm can borrow at 8% and the corporate tax rate is 34%.

Required:

What will the value of the firm be if it converts to 50% debt?

A. $29,871.17

B. $31,796.47

C. $32,407.16

D. $34,552.08

E. $37,119.30

Note: Please provide through step by step calculations.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91168589

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